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China Netcom Group Corp (Hong Kong) Ltd, the country's second-largest fixed-line carrier, is likely to finish its acquisition of networks in four mainland provinces before September, analysts expect.
According to a Credit Suisse First Boston report released on Monday, Hong Kong-listed China Netcom will pay US$3.4 billion to buy the networks from its parent company - China Network Communications Group Corp (CNC).
"Judging from the common practices of Hong Kong-listed mainland telecom companies, China Netcom is likely to finish the acquisitions in August or September," said analyst Samuel Chua with KGI Asia in an interview with China Daily.
China Netcom announced on April 27 that it had started preliminary talks with its parent company for the purchase of fixed-line networks in four provinces including Heilongjiang, Jilin, Shanxi and Inner Mongolia.
But the company did not disclose how much it would pay for the assets and there is no indication when the talks will be concluded.
"The purchase will help China Netcom enhance its market performance," Chua said.
China Netcom's share price climbed 1.86 per cent to end at HK$10.95 (US$1.4) yesterday.
He expected the purchase to drive the share price up about 12 per cent over the year.
The company early last month posted its first annual profit in two years, reaching 9.25 billion yuan (US$1.12 billion) after adding phone and Internet subscribers.
"The upcoming purchase will be very conducive to enhancing its competitiveness in the market as it will help China Netcom raise more funds for further development," Chua said.
The analyst also said that China Netcom is unlikely to raise funds through share sales.
"It is still too early to judge in what way China Netcom will raise more funds," he said, adding that ways should be considered after the acquisitions.
Nevertheless, Chua believed that as the Chinese Government is likely to kick off a new round of telecoms reshuffling later this year, China Netcom was making the right move in strengthening its performance through acquisitions.
In fact, to better position itself, China Netcom bought a 20 per cent stake in PCCW, Hong Kong's dominant phone company, for US$1 billion in cash.
Analysts believe that the co-operation with PCCW will help China Netcom enhance its broadband services - a focus and new growth area for the company in the future.
Broadband and Internet services were the firm's major growth engines in 2004 and its subscribers grew by 145.3 per cent to 6.22 million as a result of Internet penetration and the proliferation of content and applications.
"Also, as the country is likely to roll out its third generation (3G) mobile telecommunications, China Netcom should be well prepared for the new business opportunities," Chua said.
It is widely expected that the Chinese Government will kick off its 3G strategies by issuing three 3G licences later this year.
(China Daily May 11, 2005)
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